The crisis has deepened – Esfender KORKMAZ


Tuesday 6 September 2022

Turkey implemented a fixed exchange rate regime in 2000. The target exchange rate increases CPI increased by up to 20 percent. But when the CPI rose to 39 percent, above the target, the exchange rate exploded into the free market.

The fixed exchange rate policy at the time served to some extent as insurance. There was a crisis with the exchange rate shock. But with the stabilization program, Turkey came out of the crisis in one year.

The floating exchange rate policy does not create sudden crises. But it tells the crisis and prolongs its life. Turkey first fell into the floating exchange rate trap. Then, it fell into the trap of targeting negative real interest rates for policy funding.

It’s called heterodox politics … But heterodox politics are based on short-term shock measures. For example, public prices need to be kept constant in the short term. But our government has raised the price of electricity and natural gas two to three times the rate of inflation. Industry representatives announced that a 50 percent increase in the prices of electricity and natural gas used in industry will increase costs in clothing by 20 percent and in the automotive sector by 15 percent.

Again, in heterodox policies, exchange rates are also temporarily frozen. The floating exchange rate system is contrary to heterodox policies.

Such biases and errors aggravated the TL crisis and brought inflation in Turkey to an inextricable end.

* At the end of 2002 the dollar was 1,600 lire. The average for August 2022 was 18.20 lire. The rate of increase is 1127 percent.

* While annual consumer prices were 29.7% in 2002, they rose to 80.21% in August 2022.

* The 2002 annual wholesale price index (WPI – similar to D-PPI) was 30.8% that day, up from 143.75 in August.

Those who lose more than inflation;

While the CPI was 80.21 in August, the 12-month average CPI rate was 54.69%. Workplace rent increases are legally increased by 12 CPI months. In this case, the owners of the workplaces have lost, the tenants of the workplaces have won.

Tenants won, as residential rent increases were limited to 25%. The hosts lost.

Food prices increased by 90.25%, more than the annual CPI. TURKSTAT took the rich-poor average share of food in the August CPI basket of 25.32%. In fact, the share of food in the spending basket of workers and the poor is 40 percent or more.

If we bring the food share to 40 percent, the CPI rate for August becomes 93.51. It is necessary to raise wages and salaries by 93.51 percent by preparing a life index.

In the current situation, public workers and employees are losing. The poor are most affected by inflation.

Will the 65% CPI target set by the government for the end of the year be maintained?

The D-PPI is 143.75% and the CPI is 80.21% higher. D-PPI shows cost increases. If the higher cost growth stays with the company, the companies will fail. These increases will be reflected in retail and therefore the CPI rate will rise.

Wrong and wrong policies have put us in the interest-exchange-inflation trap. Negative real interest causes the exchange rate to rise, and as the exchange rate rises, so does inflation. Because production depends on imported inputs.

The government does not have a stabilization program.

The two riskiest indicators of the crisis are the deterioration of price stability and the exchange rate risk. If there is no stabilization program, the confidence problem will increase. There is a perception that the management of the economy is not aware of the problem or cannot solve it. Inflation rises.

This is what is happening in Turkey. The government has announced a three-year medium-term program, but this program is only a desire of the government.

In 2001, inflation in Turkey was reduced with the transition program to a strong economy. There is no such program or look for a solution today. For this reason, the year-end target of 65% is not met and, moreover, the risk of hyperinflation is high.



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